Pensions watchdog: Another BHS-style disaster could happen

Lesley Titcomb wants a veto on deals involving distressed pension schemes.REUTERS/David Gray
The CEO of The Pensions Regulator (TPR) has told the Financial Times she wants the watchdog to have powers to veto takeovers involving distressed pension schemes to stop another under-funded pension disaster on the scale of BHS.

TPR CEO Lesley Titcomb told the paper:

"Another BHS-type sale could happen because of clearance being voluntary. If we are not approached then there is nothing we can doing about it. That is why one of the areas we need to look at is whether, in certain circumstances, corporate transactions should come to us."

Titcomb added in the FT interview that potential veto powers would be relatively limited, as they would only apply to deals involving underfunded defined benefit pension schemes, of which there are a dwindling number. Titcomb says:

"We are talking about a limited set of circumstances here, perhaps where there is underfunding [of the pension]. I think we do need to recognise, though, that any such power has to be proportionate. To require all corporate transactions to come through us would gum up the system. Cases like BHS are rare."

These are all defined benefit schemes. Defined benefit schemes are pension schemes where members are promised a certain level of payout once they retire. These are increasingly unworkable because people are living longer, meaning employers need to meet these payout levels for longer, and because interest rates are in the toilet, making earning the money to pay the pensions all but impossible.

Most companies are closing or no longer offering defined benefit pension schemes to employees (Royal Mail is in talks to close its scheme) but for those companies that still have to service one, the scheme is a millstone around its neck.